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Better Fee Disclosure Urged for 401(k)s

Participants may not be getting sufficient information, a fund trade group testifies.

September 22, 2006|Walter Hamilton | Times Staff Writer

NEW YORK — The mutual fund industry's chief trade group called Thursday for better disclosure of fees in 401(k) retirement plans, saying some people may not get the information needed to understand how much they're paying to the financial firms that manage their retirement savings.

In testimony to a Labor Department advisory panel, the Investment Company Institute said there were "significant gaps" in the disclosure given to some 401(k) investors and that they might not receive basic information about fees and investment performance.

Fees have become a major issue in the 401(k) world, with experts saying that many employees can't figure out expenses because of insufficient or confusing information provided by 401(k) providers.

Participants get basic information about investment costs. But they may not be told whether they're paying administrative charges -- such as for account record-keeping or the payment of broker commissions -- that are deducted from their accounts.

Employers themselves often don't completely understand what workers are paying and can't negotiate for lower costs, experts say.

"Real fee disclosure is lacking in many ways," said Parker Payson, executive vice president of Employee Fiduciary Corp., a 401(k) record-keeping and administration firm based in Mobile, Ala.

"While a professional who spends hours can learn what the fees are, the typical employer and employee have no idea what they're being charged."

Fees have come under a spotlight as companies have scaled back traditional pensions and as 401(k)s have become the primary retirement savings vehicle for a generation of Americans.

The Times reported this spring that employers increasingly were shifting 401(k) costs to workers, who were often unaware of the fees being taken out to manage their nest eggs.

Fees can vary significantly based on factors such as the size and negotiating clout of an employer and the types of investments chosen for the 401(k).

In testimony to the Labor Department panel, Elizabeth Krentzman, general counsel of the Investment Company Institute, said investors received extensive information about mutual funds.

But they may not get such details for other 401(k) investments, such as annuity products offered by insurance companies, she said in an interview.

All 401(k) providers should be required to give investors brief summaries of fees and other salient information, she said.

Some experts say it can be difficult to understand the fees of group annuities, which insurance companies use in 401(k)s.

In addition to underlying investment charges, group annuities often have additional "wrap" fees, Payson said. Mutual funds, by contrast, have fewer layers of charges, he said.

Nick Curabba, senior counsel at the American Council of Life Insurers, said insurers worked hard to make sure investors understood fees. "We're out there fighting for every dollar, and we're not going to be in business very long if we don't disclose everything," he said.

David Wray, president of the Profit Sharing/401(k) Council of America, which represents employers, said employees might not know about some administrative charges.

But he questioned whether that mattered, saying that most people feel overwhelmed by 401(k) investing.

Added disclosure could scare them away from 401(k)s, he said.

"The primary goal is to get them in the plan saving for retirement," he said. "For employees who want to know more, the information is available."

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